The United States District Court for the District of Massachusetts recently granted a motion to dismiss a putative securities fraud class action in favor of Alnylam Pharmaceuticals, Inc. and several of its executive officers (collectively, "Alnylam").1  Plaintiffs alleged that Alnylam made materially misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act, as well as SEC Rule 10b-5, in connection with Onpattro, a drug it had developed to treat hereditary transthyretin-mediated amyloidosis ("hATTR").  The decision and its implications are discussed in more depth below.

Background

In 2017, Alnylam conducted a Clinical Trial that sought to evaluate the efficacy and safety of Onpattro for treating hATTR patients experiencing polyneuropathy.  The Clinical Trial included as a secondary endpoint, the evaluation of the efficacy and safety of the drug in treating a subset of hATTR patients who were experiencing cardiomyopathy, as well as exploratory endpoints that included cardiac assessments.

In September 2017, Alnylam received the results from the Clinical Trial.  It then announced the study had met both its primary and secondary endpoints.  Following that announcement, Alnylam's stock price rose 51% from $75.04 to $113.84.  Alnylam simultaneously claimed the Clinical Trial supported FDA approval for treating cardiomyopathy.  In December 2017, Alnylam submitted a New Drug Application to the FDA that sought approval for Onpattro to treat both hATTR-induced polyneuropathy and cardiomyopathy.

In August 2018, the FDA approved Onpattro for treating polyneuropathy, but not cardiomyopathy.  After the FDA's announcement, Alnylam's stock price decreased nearly 6% from $97.38 to $90.95.  On September 12, 2018, the FDA released a report ("FDA Report") that discussed its review of Onpattro.  Several securities analysts then published reports analyzing the FDA Report.  They generally concluded the FDA Report revealed greater safety risks and a more limited market opportunity for Onpattro than previously thought.  The analysts' reports suggested Alnylam did not provide sufficient cardiac efficacy data to the FDA, and that the FDA was concerned about cardiac deaths during the Clinical Trial.  Following these reports, Alnylam's stock fell by more than 5%, from $100.35 to $94.75.        

Subsequently, the European Medicines Agency ("EMA") reached a different decision and approved Onpattro for treating all manifestations of hATTR (in patients with polyneuropathy).  The EMA further approved the inclusion of cardiac data in Onpattro's label. 

Decision On Motion To Dismiss

A group of investors filed suit, alleging Alnylam made materially misleading statements about Onpattro and the results of the Clinical Trial between February 15 and September 18, 2018 (the "Class Period").  Plaintiffs sought damages on behalf of investors who purchased stock in reliance on those statements and suffered losses as a result of declines in Alnylam's stock price.  Alnylam moved to dismiss, arguing plaintiffs failed to state a claim because their allegations did not satisfy the Private Securities Litigation Reform Act's ("PSLRA") heightened pleading standards.  The Court agreed, and dismissed plaintiffs' complaint in its entirety without prejudice.

Alnylam's Statements About The Clinical Trial

Plaintiffs challenged dozens of Alnylam's statements related to the Clinical Trial, contending that they constituted fraudulent misrepresentations.  The Court rejected plaintiffs' arguments, holding that "Alnylam presented its data in a positive light and made optimistic statements before FDA review, [which,] without more, does not make those statements materially misleading."

First, plaintiffs argued the Clinical Trial was not intended to evaluate Onpattro's efficacy for treating cardiomyopathy, thereby rendering all statements Alnylam made about FDA approval for that purpose misleading.  The Court disagreed, recognizing the Clinical Trial "included secondary endpoints designed to test the efficacy . . . on measures of cardiac function," as well as "exploratory endpoints which incorporated cardiac assessments."  The Court was also persuaded by EMA's approval and inclusion of cardiac efficacy data in Onpattro's label.  It explained that the FDA's decision not to approve Onpattro for cardiomyopathy "does not demonstrate that such approval was out of the question or that the study was never designed to evaluate cardiomyopathy."

Second, plaintiffs claimed Alnylam failed to submit cardiac efficiency data to the FDA.  They argued FDA approval for treating cardiomyopathy was impossible without relevant data, similarly rendering optimistic statements about FDA approval fraudulent.  The Court found this contention to be contradicted by the FDA Report and the EMA's approval.  It explained "just because [the FDA] came to a different conclusion [than Alnylam] does not mean there is merit in plaintiffs' claims that no data was presented or that the challenged statements constituted securities fraud."  It also noted that the EMA included cardiac data on the drug label it approved, signifying that Alnylam submitted "relevant data." 

Third, plaintiffs challenged statements Alnylam made interpreting results and data from the Clinical Trial.  The Court explained that statements are not fraudulent simply because the "FDA interpreted trial results differently and [Alnylam's] opinions may have been erroneous."  It concluded that these statements were non-actionable opinions, holding "opinions interpreting the results of a clinical study are not actionable" without "specific allegations of falsity." 

Fourth, plaintiffs alleged Alnylam made misleading statements claiming Onpattro was safe, while failing to disclose that cardiac-related deaths in Onpattro-treated patients occurred at a higher frequency than it did in placebo patients during the Clinical Trial.  Alnylam countered that the FDA Report stated those cardiac-related deaths (1) were not caused by Onpattro; (2) constitute too small a sample from which to draw a conclusion; and (3) included patients with gene mutations associated with higher mortality.  The Court agreed, stating that the FDA Report concluded "there was no imbalance between [Onpattro] and placebo groups and deaths were considered unrelated to study treatment."

Forward-Looking Statements Related To FDA Approval

Plaintiffs also challenged optimistic statements Alnylam made on investor calls about prospects for FDA approval for treating cardiomyopathy.  The Court decided these were "typical forward-looking statements" protected by the PSLRA's safe-harbor provision.  It reasoned the statements "anticipated a hoped-for future event" and were accompanied by meaningful cautionary language.  The cautionary language included a statement made at the outset of each call addressing forward-looking statements and referring listeners to Alnylam's 10-Q, which detailed "over 25 pages of risk factors . . . related to development, clinical testing and regulatory approval . . . and detailed statements about [the Clinical Trial]"; slides accompanying many calls that identified risks similar to those detailed in the 10-Q; and specific warnings that FDA approval was not guaranteed, and could be limited to "polyneuropathy patients."  The Court found these "specific terms sufficient to trigger the safe harbor."  

Scienter

The Court also addressed scienter.  Plaintiffs argued insider trading by individual Alynlam defendants led to a "strong inference" of intent to defraud.2  Specifically, they claimed "four of the five individual defendants sold their Alnylam stock in the aggregate amount of $66 million" during the Class Period.  Alnylam responded that the challenged stock sales were (1) not unusual or suspicious; (2) executed pursuant to Rule 10b5-1 trading plans; and (3) consummated at times distant from market-moving announcements. 

The Court agreed.  It held sole reliance "on proceeds from insider trading is insufficient to establish a strong inference of scienter," and explained plaintiffs failed to provide "necessary evidence or context surrounding the trades."  The Court specifically identified the absence of any mention of "the percentage of the holdings of each defendant that were sold during the Class Period."  Moreover, the Court analyzed the insider trades and concluded they "were not significantly unusual."3  It also noted the fact that the challenged trades were pre-scheduled pursuant to Rule 10b-5 trading plans "negates an inference of scienter."             

Conclusion

Hull Leavitt is favorable precedent for defendants faced with putative securities fraud class actions, both in the life sciences industry and more generally.  In order to survive dismissal, plaintiffs bringing claims against life science defendants in connection with statements made about drugs or devices going through regulatory approval will need to plead more than contrasts between optimistic statements made prior to agency review and the FDA's ultimate decision. 

Footnotes

1 Hull Leavitt  v. Alnylam Pharmaceuticals, Inc. et al., Case No. 18-12433-NMG, 2020 WL 1332862 (D. Mass. Mar. 23, 2020).

2 Plaintiffs also argued they adequately set forth scienter because (1) the Clinical Trial was not intended to secure FDA approval for cardiomyopathy, and (2) efficacy and safety data from that study did not support FDA approval for cardiomyopathy.  These arguments were dismissed for the same reasons discussed supra.

3 One defendant did not trade during the Class Period, which, while not dispositive, "undercuts the inference of scienter" for the others.  A second defendant was ineligible to trade prior to the Class Period because her options did not vest, and she acquired more stock than she sold during the Class Period.  Another defendant traded in close correspondence with stock options that were to expire, and remained relatively consistent before, during and after the Class Period.  Two other defendants sold, respectively, 6% and 14% more of their holdings during the Class Period than they did during the prior year, but these increases did not go "'well beyond normal patterns of trading.'"

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